Optimal portfolio choice with wage-indexed social security
By: Jialun Li, Kent Smetters
Contributors: Smetters, Kent A. (Kent Andrew); National Bureau of Economic Research
Series: NBER working paper series -- working paper 17025; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17025.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.  This paper re-examines the classic question of how a household should optimally allocate its portfolio between risky stocks and risk-free bonds over its lifecycle.  We show that allowing for the wage indexation of social security benefits fundamentally alters the optimal decisions.  Moreover, the optimal allocation is close to observed empirical behavior.  Households, therefore, do not appear to be making large "mistakes," as sometimes believed.  In fact, traditional financial planning advice, as embedded in "target date" funds - whose enormous recent growth has been encouraged by new government policy - often leads to even relatively larger "mistakes" and welfare losses"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/21/2011.

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